Chili's joins the casual-dining blame game
Its parent company claims the higher payroll tax and gas prices are responsible for slumping sales -- just like Red Lobster and Olive Garden.
We have met the enemy, and he is not us.
Why? Brinker fingered the lapsed Social Security payroll tax cut, rising gas prices and delayed federal tax refunds for its dour quarterly outlook.
If all of this sounds oddly familiar, it's because Olive Garden and Red Lobster parent company Darden International (DRI) made a similar claim while revising its annual forecast last week. Like Darden, however, Chili's and Brinker have a lot more dragging down their sales than just current events.
For much of of 2012, sales at Chili's and Brinker's second chain, Maggiano's Little Italy, were up 2.7% from 2011, and the company's share price increased 50%. Unfortunately for Chili's, 2-for-$20 meal deals contributed the biggest portion of that growth even as industry experts warned such pricing was unsustainable.
Now, Brinker says, sales at Chili's are down 2.2% for the third quarter and Maggiano's sales are flat. It's an industrywide problem for casual-dining establishments, whose collective sales have fallen each quarter since spring of 2010 as they increasingly lose customers ages 18 through 47, according to NPD Group.
The problem is especially acute for chains like Chili's, where the cost of meals has been rising and meal deals cut off a large chunk of profits. The cost of dining out climbed 2.7% over the last year, according to the Consumer Price Index. That's ahead of the 2.2% overall rate of inflation but still far less than customers absorb once a chain's sale prices fade away. Customer who pay $10 for a promotional deal will pay 20% to 40% more when the price rises to $12 or $14 a few months later.
Even Wal-Mart (WMT) used the same excuse as Brinker to explain away its soft performance in January -- despite competitors like Target (TGT), Macy's (M) and TJX (TJX) reporting rising sales during the same month. But the casual-dining industry's woes predate the items on Brinker's current list of problems.
It's not about the portion size, and it's not even about the product's quality. It's about the value. If diners are willing to lap up your meals at $10 but turn up their noses when they're $2 to $4 more, no drop in payroll taxes or gas prices will make them change their minds.
The way the economy is heading, the only meals we will be eaten will be at the Costco restaurant:
Hot Dog and Coke $1.50
Pizza $1.99
My wife and I both went from working overtime...to no overtime...to part time...to doing what ever it takes to pay bills (mostly small contract work) and not knowing how we will make it through the year. Can't speak for anyone else, but we won't be eating at Chili's anytime soon.
We see no strength in the economy. We see no strenght in our client's business.
This author is apparently an expert on restaurants, where-as those whom actually run them apparently have no clue...yeah right.
When it comes to restaurants, the lion's share of the market goes to the new ones and the established ones that managed to rise above the competition. There have to be at least twenty restaurants in the same price and product category as Chili's in my town and I haven't been to all of them, so why should I go back to Chili's instead of trying one I haven't been to or better yet a good local non-chain place?
The price of ultimate success for chain places is ubiquity. They're everywhere and not all that different from their competition. I can go to a Chili's in any large town in America and it's the same menu and environment where ever. Been there and done that. I like trying something new or at least something that I can't get anywhere.
[Sung to the tune of the baby back ribs jingle]
I want my Obama tax Obama tax Obama tax Obama tax Obama tax Obama tax...hikes, I want my Obama tax Obama tax Obama tax Obama tax Obama tax Obama tax...hikes, I want my Obama tax Obama tax Obama tax Obama tax Obama tax Obama tax...hikes...Obama...taaaaaaax hiiiiiiiiiikes! Barbecue sauce!
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